I was certainly surprised to see Barack Obama propose any sort of spending freeze. Less surprising, however, is how it’s been reported.

For reasons that I admit escape me, it is apparently a law of journalism that any budget-related act will be made to look as stingy as possible. Remember this when you read the news.

Spending increases that were planned all along aren’t considered increases at all and do not make the news. Unplanned increases, those over and above the planned ones, are reported as though only the unplanned parts were increases. Large spending increases get extra praise for boldness. Reductions in the rate of spending growth are called “spending cuts.” Real though tiny cuts are described as draconian measures. We would probably have to invent a new word, something scary with reference to the intimate anatomy, if significant, across-the-board spending cuts ever arrived. Within most of our lifetimes, this has never happened.

Today’s reporting fits the pattern perfectly. The Washington Post headline proclaims, “Obama to Propose Freeze on Government Spending.” The New York Times declares, “Obama to Seek Freeze on Some Spending to Trim Deficits.” It is, we learn, “an initiative intended to signal his seriousness about cutting the budget deficit.”

Wonderful! Or stingy! Or both!

But not, you know, accurate. The details are in the fine print, and they don’t remotely live up to the headlines. The freeze applies only to discretionary spending. It doesn’t touch military or entitlement programs, and these are the large majority of the budget. It may not even be a meaningful freeze on the discretionary portion, as my colleague Dan Mitchell points out. And it’s only down in the fifth paragraph where the Times notes that “The estimated $250 billion in savings over 10 years would be less than 3 percent of the roughly $9 trillion in additional deficits the government is expected to accumulate over that time.”

In other words, today’s news is a virtual nothing with almost no likelihood of being carried through anyway. If this is “intended to signal seriousness,” I wonder what an unserious proposal would look like. I also wonder what sort of proposals we’d get from our politicians if our media reported on budget matters without its deeply ingrained bias against fiscal discipline.

Biased Budget Reporting is a post from Cato @ Liberty - Cato Institute Blog

That is one of the conclusions in my new paper, “Made on Earth: How Global Economic Integration Renders Trade Policy Obsolete.”

For hundreds of years, trade policy has been premised on the assumptions that exports are good, imports are bad, and the interests of domestic producers are tantamount to the “national interest.” Though that mercantilist worldview has never been accurate, its persistence as a pillar of trade policy into the 21st century is especially confounding given the emergence and proliferation of disaggregated production processes, transnational supply chains, and cross-border investment. Those trends have blurred any meaningful distinctions between “our” producers and “their” producers and speak to a long chain of interdependent economic interests between product conception and consumption.

Still, trade policy places the interests of domestic producers above all else even though the definition of a domestic producer is elusive and even though actions on behalf of producers often harm interests along the product continuum, which include engineers, designers, financiers, processors, assemblers, marketers, shippers, retailers, consumers, and others.

In 2008, foreign nameplate automobile producers, employing American workers, paying American taxes, and supporting American businesses, communities, and charities, accounted for almost half of all U.S. light vehicle production. The largest “U.S.” steel producer, Arcelor-Mittal, is a majority-Indian-owned company with headquarters in Luxembourg and Hong Kong. The largest “German” producer, Thyssen-Krupp, is completing a $3.7 billion green-field investment in steel production facilities in Alabama, which will create an estimated 2,700 jobs in that state.

So, who are “we”? And who are “they”?

Are these foreign-named or –headquartered companies not “our” producers because some of the profits they earn are repatriated or invested in operations outside the United States? If so, then shouldn’t we consider U.S. Steel Corporation, which earned 25 percent of its revenue last year on steel produced in Slovakia and Serbia, and General Motors, which has had success producing and selling cars in China, to be “their” producers? Why should U.S. Steel, General Motors, and the unions that organize workers at those companies dictate the parameters of U.S. trade policy, while Toyota, Thyssen and their non-union workers have no input? Why should trade policy reflect a bias in favor of producers—or worse, particular producers—at all? That bias hurts other interests—both foreign-based and domestic—in the supply chain.

Global commerce isn’t a competition between “us” and “them.” It is instead a competition between entities that defy national identification because of cross-border investment or because the final good or service comprises value added from many different countries. This reality demands openness in both directions, which flies in the face of conventional trade policy wisdom, which seeks to maximize access for domestic producers abroad while minimizing access for foreign producers at home.

It is only for simplicity’s sake that a container full of iPods shipped from China and unloaded in Seattle registers as imports from China. But the fact is that only a few dollars of the $150 cost to produce an iPod is Chinese value-added. The rest is mostly value attributable to Japanese, Korean, Singaporean, Taiwanese, and American components and labor. Then iPods retail for about $300 and most of the mark-up accrues to Apple, which uses the profits to support innovation and higher paying jobs in the United States.

From a trade policy perspective, each iPod imported from China adds $150 to our bilateral deficit in “high tech” goods. It is regarded as a problem to solve. The temptation is to restrict.

But from a commercial perspective, each imported iPod supports U.S. economic activity up the value chain. Without access to lower-cost labor abroad—if rudimentary component manufacturing and assembly operations were required to take place in the United States—ideas hatched in American labs would be far less likely to make it beyond the white board. Much higher costs would make it far more difficult to create these ubiquitous devices that have, in turn, spawned new ideas and industries.

Essentially, the factory floor has broken through its walls and today spans borders and oceans, making Chinese and American labor complementary in this and many other industries. Yet, despite all of this integration, despite the reliance of producers in the United States and abroad on imported raw materials, components, and capital equipment, trade policy still pretends that access to the domestic market is a favor to grant or a privilege to revoke. Trade policy is officially ignorant of commercial reality.

Openness to trade in both directions is an imperative in the 21st century. Policies that do not try to channel incentives for the benefit of specific groups but rather provide the greatest opportunities for citizens to participate most effectively in our increasingly integrated global economy are the ones that will maximize economic growth and national welfare. People in other countries should be thought of more as customers, suppliers, and potential collaborators instead of competitive threats.

In the 21st century, instead of serving the exclusive interests of domestic producers, trade policy should be about welcoming investment and attracting and cultivating the human capital necessary to make the United States the location of choice for the world’s highest value economic activities.

Is Trade Policy Obsolete? is a post from Cato @ Liberty - Cato Institute Blog

The Department of Justice just invalidated a move by the residents of Kinston, North Carolina, to have non-partisan local elections. Rationale?

The Justice Department’s ruling, which affects races for City Council and mayor, went so far as to say partisan elections are needed so that black voters can elect their “candidates of choice” – identified by the department as those who are Democrats and almost exclusively black.

The department ruled that white voters in Kinston will vote for blacks only if they are Democrats and that therefore the city cannot get rid of party affiliations for local elections because that would violate black voters’ right to elect the candidates they want.

This, coming from the same Department of Justice officials that wouldn’t know a civil rights violation if it picked up a club and barred them access to a polling place.

Department of Bias is a post from Cato @ Liberty - Cato Institute Blog

Today’s  Arena question over at Politico asks:

Is Fox News a “legitimate news organization?” Is the White House smart, or not so smart, to take on Fox?

Is Fox News a “legitimate news organization?” As compared to what? The New York Times? NPR? MSNBC? Please.

The Obama team, Democrats like my good friend Walter Dellinger, and the so-called Mainstream Media (MSM) howl about Fox News for two main reasons. First, Fox is covering news the MSM ignores because it doesn’t “fit.” And second, in part because of that, the Fox audience continues to grow while the MSM audience is shrinking, raising a serious question about whether the MSM is any longer “mainstream.”

Let’s not pretend that the MSM doesn’t “manage” the news. It does it mainly by deciding daily what is and is not “news” and then by deciding how to report that news. Do we need any better example than the current ACORN story? As Fox was bringing the facts to light, nowhere were those facts to be found in the MSM — until they could be ignored no longer. Or take the huge 9/12 anti-big-government rally here in Washington. Fox covered it for the event that it was. Where was it covered in The New York Times? On page A37. And more revealing still, in the NYT electronic edition, the second of three stories posted under “Politics” was headlined “Thousands Rally in Minnesota Behind Obama’s Call for Health Care Overhaul,” the third was headlined “Thousands Rally in Capital to Protest Big Government” — the implication being that the two rallies were equivalent in size when in fact the protest rally dwarfed the Obama rally by many multiples.

But why pretend it’s otherwise? The president himself admits the MSM bias. Speaking at the May 9 White House Correspondents’ Association Dinner, “I am Barack Obama. Most of you covered me. All of you voted for me. (Laughter and applause.) Apologies to the Fox table.” A good laugh line in that setting, to be sure, but only because he’s said at last what we all know to be true.

Walter Dellinger may write, citing no evidence, that the Tax Day Tea Party protests were “conceived and executed by Fox News,” but he surely knows that’s not true. He hails from North Carolina, albeit now from Duke. He knows that outside that cloister there’s protest in the land. Fox News isn’t generating that opposition to the Obama juggernaut. It’s real, but it’s so much easier for the MSM to blame the bearer of that news than to face the reasons for their own falling numbers: Their “news” doesn’t fit with what so many people see with their own eyes. I’m reminded of the great Groucho Marx line: “Who are you going to believe, me or your own eyes?”

C/P Politico’s Arena

Should the White House Be Taking on Fox? is a post from Cato @ Liberty - Cato Institute Blog

Bruce Baker, author of the study of private school spending about which I blogged yesterday, has responded to my critique. Dr. Baker thinks I should “learn to read.”

He takes special exception to my statement that he “makes no serious attempt to determine the extent of the bias [in his chosen sample of private schools], or to control for it.” Baker then points to the following one paragraph discussion in his 51 page paper that deals with sample bias, which I reproduce here in full [the corresponding table appears on a later page]:

The representativeness of the sample analyzed here can be roughly considered by comparing the pupil-teacher ratios to known national averages. For CAS and independent schools, the pupil-teacher ratio is similar between sample and national (see Figure 21, later in this report). Hebrew/Jewish day schools for which financial data were available had somewhat smaller ratios (suggesting smaller class sizes) than all Hebrew/Jewish day schools, indicating that the mean estimated expenditures for this group might be high. The differential, in the same direction, was even larger for the small group of Catholic schools for which financial data were available. For Montessori schools, however, ratios in the schools for which financial data were available were higher than for the group as a whole, suggesting that estimated mean expenditures might be low.

Even with my admittedly imperfect reading ability, I was able to navigate this paragraph. I did not consider it a serious attempt at dealing with the sample’s selection bias. I still don’t. In fact, it entirely misses the main source of bias. That bias does not stem chiefly from class size differences, it stems from the fact that religious schools need not file spending data with the IRS, and that the relatively few that do file IRS Form 990 (0.5% of Catholic schools!) have a very good reason for doing so: they’re trying harder to raise money from donors.  This is not just my own analysis, but also the analysis of a knowledgeable source within Guidestar (the organization from which Baker obtained the data), whose name and contact information I will share with Dr. Baker off-line if he would like to follow-up.

Obviously, schools that are trying harder to raise non-tuition revenue are likely to… raise more non-tuition revenue. That is the 800 pound flaming pink chihuahua in the middle of this dataset. According to the NCES, 80 percent of private school students are enrolled in religious schools (see p. 7), and this sample is extremely likely to suffer upward bias on spending by that overwhelming majority of private schools. They may spend the extra money on facilities, salaries, equipment, field trips, materials, or any number of other things apart from, or in addition to, smaller classes.

Baker’s study does not address this source of bias, and so can tell us nothing reliable about religious schools, or private schools in general, either nationally or in the regions it identifies. The only thing that the study tells us with any degree of confidence is that elite independent private schools, which make up a small share of the private education marketplace, are expensive. An uncontroversial finding.

It is surprising to me that this seemingly obvious point was also missed by several other scholars whose names appear in the frontmatter of the paper. This is yet another reminder to journalists: when you get a new and interesting paper, send it to a few other experts for comment (embargoed if you like) before writing it up. Doing so will usually lead to a much more interesting, and accurate, story.

Author of the Private School Spending Study Responds is a post from Cato @ Liberty - Cato Institute Blog

Ari Schwartz responded in characteristic even tones to my critique of his testimony in favor of the PASS ID Act, which would revive the moribund REAL ID law. It’s worth a rejoinder, and I’ll offer him the same again here if he wishes.

Ari clouds matters slightly by suggesting that my “strong biases” obscure certain facts. I readily admit having a strong bias in favor of liberty — it’s why I do what I do. Ari admits several biases, including one in favor of consensus-building, which was what I accused him of prioritizing over principle. Let’s put aside the question of bias.

It’s good to see Ari state that CDT does not support a national ID system. It would be better to see him state that CDT opposes having a national ID system. (I imagine this is just a matter of word choice, but it would be good to have clarity.)

Next, Ari says his testimony “makes it clear that we believe that PASS ID prevents the creation of a National ID system.” I don’t believe this is clear from his testimony. More importantly, this is not a sound assessment of what a national ID is or what PASS ID does.

We need some defined terms, so let’s tease out what he means by “national ID.” (He has told me that there is some distinction between a “national ID,” a “national ID system,” and perhaps a “national ID card,” but the distinction is lost on me. I believe a national ID card is part of a national ID system, both of which are commonly referred to in shorthand as a “national ID.”)

Twice in his testimony, he correctly calls REAL ID a national ID system. The factors that make it so appear to be “the very real possibility that individuals would not be able to function in American society without a REAL ID card” and “giving unfettered discretion to DHS to expand the ‘official purposes’ for which REAL ID cards could be required.”

In my recent post on the subject, I defined a national ID as being a card: 1) nationally uniform in its key elements; 2) the possession of which is either practically or legally required; and 3) that is used for identification.

I think 1) and 3) are both given. Ari’s take on 2) – inability to function without it — and my formulation — practically required — are equivalent, so Ari and I agree on that much.

But is DHS discretion to expand “official purposes” an essential element of a national ID card? I don’t think so.

Let’s say Congress passes a law requiring employers to check a certain card before they hire new workers. What if Congress requires credit issuers to check the card? States require presentation of the card at the voting booth? What if Congress requires pharmacists to check it before selling people cold medicine?

Is this card system saved from being a “national ID system” because someone other than DHS came up with these ideas? Of course not. DHS discretion to expand usage is not what makes an ID system a “national ID system.”

The better definition is what we agree on: A national ID is national, identifying, and practically or legally required, meaning the lack of it disables people from functioning in society.

Do REAL ID and PASS ID differ in ways that make the one a national ID and the other not a national ID? No, and Ari doesn’t say so. He merely says PASS ID would slow national ID mission creep by some margin because it denies DHS some discretion. (PASS ID “[r]emoves from DHS’s authority the ability to unilaterally determine new official purposes for which a PASS ID-compliant card can be required . . . .”)

This is not central to “national ID-ness,” and PASS ID doesn’t actually deny DHS that authority — it simply removes the specific grant of authority in REAL ID. Removing a grant of authority in one law does not deny an agency authority it has elsewhere. (It’s like the difference between “not supporting” and “opposing” something.) DHS and other agencies almost certainly have power under other law to require the IDs they choose for functions that are plausibly related to security or fraud prevention.

I was wrong to assume that it was lack of principle driving CDT and Ari to endorse the PASS ID Act, which revives our moribund national ID law. Other explanations are no more palatable, though, and no other group that I am aware of missed the true import of PASS ID.

Here’s a memorable Bruce Schneier quote to emphasize the importance of opposing a national ID, which so many civil liberties groups are doing:

History will record what we, here in the early decades of the information age, did to foster freedom, liberty and democracy. Did we build information technologies that protected people’s freedoms even during times when society tried to subvert them? Or did we build technologies that could easily be modified to watch and control? It’s bad civic hygiene to build an infrastructure that can be used to facilitate a police state.

No civil liberties group supports PASS ID. CDT can’t claim that mantle while it does.

PASS ID and National ID – Rejoinder to Schwartz is a post from Cato @ Liberty - Cato Institute Blog